NEW YORK (Reuters) - The Federal Reserve awarded a record amount of seven-day term deposits to banks at a test auction held on Monday, it said in a statement on Tuesday.
The U.S. central bank allotted $171.86 billion of them to 66 banks which will receive an interest rate of 0.26 percent.
This compared with the $110.03 billion in deposits awarded a week earlier to 67 banks which received an interest rate of 0.26 percent.
The Fed has ramped up testing of its term deposit facility after the 2008 financial crisis to help policymakers drain cash from the banking system when they decide to tighten monetary policy.
On Sept. 4, the Fed said it plans to conduct a series of eight seven-day TDF operations starting in October. These tests will have an early withdrawal feature in which banks can enter into the TDF and pull the money out before the maturity date.
In the first four operations, there is a $20 billion cap per bank and the interest rate paid on the deposit is set at 0.26 percent. The next four operations, the interest rate paid will rise "in small steps" but it will not go above 0.30 percent.
(Reporting by Richard Leong; editing by Andrew Hay)